BOSTON ( TheStreet) -- Dividend-paying stocks are gaining appeal as 2010 approaches.
Investors associate dividends with blue chips, the biggest companies with the most money for quarterly payouts. That type of stock, represented by the Dow Jones Industrial Average, has outperformed small-cap benchmarks over the past two months. But there are smaller, lesser-known companies that offer cheap shares and outsized dividends. Here are three that may exceed indices next year.
3. Universal Corp. (UVV) purchases, stores and resells tobacco leaves. It mainly deals in flue-cured, burley and oriental tobaccos, primary ingredients of cigarettes. With a market value of $1.1 billion, Universal Corp. is dwarfed by Altria (MO) and Lorillard (LO). Its dividend is also smaller. Yet, Universal Corp. is the world's leading tobacco merchant and processor, operating in more than 30 countries. Consequently, its growth rates trump domestically focused rivals.
Fiscal second-quarter net income increased 26% to $53 million, and earnings per share climbed 28% to $1.77. Revenue fell 18% to $648 million. Universal Corp.'s net margin, a measure of profitability, widened from 5% to 8%. That figure lags behind those of cigarette-selling peers. Excluding Reynolds American (RAI), the big-name tobacco companies posted lower quarterly sales and profit, even Philip Morris International (PM), whose international focus is supposed to ensure superior growth.At its current share price, Universal Corp. pays a 4.1% dividend yield. That figure is unremarkable relative to competitors' yields. But a payout ratio of 33% indicates room for distribution growth. Universal Corp.'s stock is cheaper than that of the average tobacco company, based on trailing earnings, book value, sales and cash flow. Its price to earnings to growth ratio (PEG), a measure of value relative to expected profit growth, is low at 0.4. The industry average is 1.3. This means one of two things: Investors expect Universal Corp. to grow below-trend or its stock is undervalued.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV